I had an interesting conversation the other day with a property investor. I must say I agree with her points even though I tend to favour stocks myself, but that’s because my situation is different from hers. I live in Singapore, so my points here may not be totally relevant to those who live in other countries.

Pros for investing in property :

1. Property never dies. It only gets sick. ie unlike a stock of a company that can potentially go to zero, a property has a good chance of maintaining some value, even if it falls. Unless you live in an earthquake prone part of the world of course. ( It is a serious consideration for my friend in Tokyo! She says they are long overdue for their next big quake and wanted to wait till after that to buy !)

2. Property has an intrinsic value. You can always live in it yourself if you can’t rent it out.

3. The banks will loan you money to buy property. You can leverage on what Robert Kiyosaki of Rich Dad calls Other People’s Money. Say you have $100K. You can only buy $100K worth of stocks. But if you buy a property, you can buy $1M worth of property with a 10% downpayment and a 90% loan. Then if the stock market goes up 10%, you make $10K on your investment. If the property market goes up 10%, you make $100K on you original $100K investment.

Specifically for me living in Singapore, I am allowed to use all my retirement savings account money to buy a property, but I can only spend 30% of it on shares, leaving the rest locked away till I retire, growing at 2.5%.

4. In land-scarce Singapore, property prices can only go up.

So why am I not into property ? Actually, I do plan to be eventually, it’s just a matter of time. It’s easier to put $1000 away into stocks than to find $100,000 for the downpayment ! It also takes somewhat longer to find a property one likes, versus finding a stock one likes ! There are other considerations other than the investment potential.

Cons of investing in property :

1. I need a bigger sum of money to start. I’m inclined to try to buy a property that I want to stay in myself, in a good location etc. An apartment in a good location, with facilities like swimming pool, gym, tennis courts etc that tenants would like, would cost something like $1M. That means I need $100K as a downpayment to get started in just 1 property.

2. Higher leverage can work negatively if the market turns downwards. 10 years ago, the asian financial crisis, plus SARS hit us and our property prices plunged. The ride can be very scary since something like the small apartment I mentioned, could be worth as little as $600K, and now at our property boom, the same apartment can be sold for $1.2M. You need a pretty strong stomach if you’ve taken a 90% loan.

3. Rental yields are not high in Singapore. Probably in the range of 3% , rising now towards 5%. It is not easy to find properties where the rental not only covers the mortgage ( bank interest rates are about 4%), it gives you positive cashflow as well. Having said that, it is not impossible to find. It just takes some work.

4. Properties are illiquid. It takes a while to sell one should you be in urgent need of cash.

5. Also on the point of liquidity, should rentals fall, and you are depending on them for your income, should you suddenly need a sum of cash, you may be forced to sell the entire property. Not so with stocks, where you can sell a certain sum.

6. You have to deal with tenants, leaky toilets etc.

7. If you are investing in properties in other countries, things are even harder to control ! You really have to depend on a good housing agent.